Is there a world pulp and paper problem?
The Latin American meeting of experts
This report, unlike the last to appear in Unasylva Vol. VII, No. 3, does not deal analytically and in detail with the wood pulp market. The course of events from end-19.52 to mid-1951 was outlined in the article "Forest Products, 1951-1954" in Unasylva Vol. VIII, No. 4. After singling out some of the main features of world production and trade in 1954, this article poses the question: what is the nature of the world pulp and paper problem today? The point is developed as it concerns Latin America and an assessment is given of the contribution made by the recent Latin. American Meeting of Pulp and Paper Experts towards the solution of the problems of that region.
Events of 1954 have confirmed that in 1953 the long-term upward trend in world demand for pulp products resserted itself. Recovery from the 1950-52 cycle has been complete, and the preliminary figures available indicate that 1954 will prove to have been a record year for production, consumption and trade in wood pulp. The upward trend has been general, though it has not everywhere proceeded at the same pace. Moreover the year has been marked, on the whole, by a satisfactory stability in prices. For 1955, the prospects are no less favorable.
Industrial production in Western Europe rose by about 8-9 percent in 1954 as compared with 1951. Both production and consumption of all kinds of paper and board rose even more sharply, stimulating the demand for wood pulp for paper-making. In addition there was, on the whole, increased demand for textile pulp.
In the United Kingdom, production of newsprint set up a new post-war record, while output of other kinds of paper and board was the highest ever. To end-October, consumption of wood pulp for paper-making in the U. K. was 13 percent over the 1953 level; 1954 was, in fact, the first year in which wood pulp consumption exceeded the pre-war rate.
Similar developments in other Western Europe countries dependent on imported pulp (and notably in Western Germany) evoked a record production of wood pulp in the three northern countries - Sweden, Finland and Norway. Output in 1954 almost certainly exceeded 7 million tons, compared with 6.2 in 1953 and 6.6 in the previous peak year, 1961. Exports, on the basis of the latest available estimates, rose to slightly over 4 million tons, as compared with 3.76 million tons in 1951 and 1953. The rise in pulp exports was less pronounced, partly because of the impressive rise in production and exports of paper and board, partly because a substantial part of the 1953 exports was drawn from the high level of stocks accumulated at the end of 1952.
In spite of the heavy demand in Europe for Scandinavian pulp, prices remained unchanged for the greater part of the year. Some slight advances were recorded in the closing months - of the order of 5 percent - and some of the new fixings for 1955 delivery, though not all, show further slight advances. These changes are thought to represent a needed adjustment to various cost increases; they are not thought to presage a general marked upward trend. Indeed, the general impression is that producers have exercised laudable restraint, and that this is one of the factors giving the hope of new record levels of output and trade in 1955.
In North America, too, pulp production continued to rise. For the first half of the year, production was up by 6 percent in Canada and by 2 percent in the United States, as compared with the corresponding period of the previous year. The advance was less - in relative terms - than that registered in Europe. Moreover there was not an accompanying rise in consumption. In the United States, indeed, consumption may have fallen fractionally for the years as a whole. But the fact that consumption has been maintained - or nearly so - has in itself given considerable cause for satisfaction. In contrast to Europe, the general level of industrial activity had been running well below that of 1953, and fear had been expressed of a substantial falling off in the demand for paper products. The product versatility of the paper and board industry in the United States, and the fact that non-durable goods were less affected than durable goods by the industrial setback, perhaps explain why the pulp and paper industries fared better in 1954 than did industry in general. In Canada, however, production, consumption and exports all showed increases.
North American pulp prices again continued stable throughout the year.
In other parts of the world, production and consumption of pulp continue to advance steadily, with a slow but significant rise in capacity in the less developed regions.1 In Japan, however, which for several years now has shown the most rapid advance in wood pulp production, the rising trend seems to have been checked; output in the first half of 1954 was almost exactly the same as in the latter half of 1953.
1Note also recent pulp and paper development in New Zealand
The differing trends in the development of pulp consumption and productive capacity on either side of the Atlantic have their counterpart in a significant shift in the trade pattern. Though European production is rising, demand is rising faster still, and there is an increasing disposition on the part of Western European countries to supplement their supplies of Scandinavian pulp by imports from North America, a course made possible by improved balance-of-payments positions. At the same time, United States producers, with capacity slightly over-expanded as new plants conceived during the 1950-1951 boom come into operation, have a new interest in finding export markets. Moreover, new United States production frees some Canadian exports for other destinations. Though American paper makers still require supplementary quantities of high quality Scandinavian pulps, in general the Scandinavian producers are finding it increasingly difficult to sell on the American market. Indeed, there are sings that the American market is, in fact, losing some of its former attraction as an outlet for Scandinavian pulp and paper.
The result has been a decline in the pulp and paper trade across the Atlantic westwards, and an increase eastwards. So much so that, in 1954, the net flow in the wood pulp trade was from North America to Europe, a fact which no doubt contributed to the price stability in the European market.
This shift is likely to continue in 1955: it is less easy to say whether it will become permanent. It could ultimately be reversed either by an upsurge in North American demand sharp enough to tax local capacity or by a recrudescence of balance-of-payments difficulties in Western European pulp-deficit countries. Neither of these eventualities is envisaged in 1955.
Since the end of 1952 the steady upward trend in world pulp and paper consumption has been resumed. There is every indication that this trend will continue. At the same time, the world's capacity to satisfy that demand is steadily rising. Two years ago there was a danger that the wave of investment which accompanied the 1951 boom would, as a result of the check to world consumption which occurred in 1952, lead to the creation of capacity beyond immediate future needs. But the revival in demand seems to have removed the danger of any substantial unused capacity in the immediate years.
It should be noted that the rise in production in recent years has not been the consequence solely of building new plants and installing new machines. The modernization of existing machines and the adoption of continuous working have also played an important part by enabling the more effective utilization of fixed capital. In both the world's principal producing centers - Europe and North America - the possibilities of raising output in these ways are far from being exhausted.
Can it therefore be said that a world pulp and paper problem still exists? Certainly the present situation, With a steadily expanding market and little vocal evidence of frustrated demand, has little in common with those which gave rise to the alarms of 1947 and 19,50-51. The 1952 recession has almost obliterated from memory the corollaries of the boom which preceded it - schools starved for paper in many countries and an exceptionally high death rate among newspapers and periodicals unable to secure newsprint and printing paper in sufficient quantities or at reasonable prices. But though the emergency which prompted action by the United Nations and several of its specialized agencies has passed, a long-term problem remains; it is to the solution of this problem that the efforts of the international agencies, and especially those of FAO, are being devoted.2 The problem may be summarized as follows:
2See also World Pulp and Paper Resources and Prospects, FAO 1954.
World production and consumption of pulp and paper are today highly concentrated. The four less developed regions - Africa, Latin America, the Near and Middle East, and the Far East - represent close on 70 percent of the world population. They consume little more than 8 percent of the world's' paper and board; and they produce but 5 ½ percent of the world output of paper and 4 percent of the pulp. All the countries in these regions depend partly, and many of them entirely, on imported supplies.
Yet, relatively (though not absolutely) paper needs in these regions are rising more rapidly than in the more advanced regions. It is by no means certain that the traditional exporting centers, Europe and North America, will have a rising surplus over and above their domestic requirements to satisfy these needs. Moreover, the pattern of the world market is such that marginal changes in the supply demand balance in the advanced regions could seriously interrupt the flow of pulp and paper to the less developed regions.
Even if import supplies were available in ample quantities, the less developed regions have too many calls on their limited foreign exchange resources to expand imports indefinitely. There is abundant evidence that already paper consumption in most of these countries lags far behind the levels appropriate to the stage of economic and cultural development they have reached.
The problem, therefore, is to encourage the expansion of indigenous pulp and paper production in these countries, so that they may have a greater security of supply and so that lack of these key materials does not hamper industrial? educational and cultural progress.
Most of these countries possess abundant resources of fibrous materials suitable for paper-making. Though important reserves of those coniferous species on which the European and North American pulp industries are largely based are few and far between in the less developed regions, there are many other species, coniferous and hardwood, in forests and plantations, from which paper can be made. There are also immense reserves of many non-wood fibers suitable for paper-making. The biggest single resource lies in the mixed hardwoods of' the tropical forests - as yet scarcely tapped for pulp.
Moreover, technical advances in recent years have not only immensely widened the potential raw materials basis of the pulp and paper industry; they have brought about considerable reductions in the potential cost of processing non-conventional fibers.
But if it is true that there are ample reserves of fiber in most of these countries and means of processing them are available, what are the obstacles to rapid development? They can be stated very simply. Leaving aside generalities of overall resources and technical possibilities and considering only project assessment, there are five categories of problems: resources, techniques, markets, finance, cost.
Resources
It is not enough to know that a country possesses ample forests or resources of other fiber. It must be established that sufficient reserves exist in close proximity to a suitable site to allow their economic long-term exploitation on a sustained yield basis. At the present time, however, forest inventories with the detail necessary for such an appraisal rarely exist. Forest services are sometimes rudimentary and usually understaffed; there is a great shortage of trained personnel capable of carrying out this kind of work.
If the use of non-wood fibers is contemplated, it is necessary to establish that a sufficient and continuous supply can be made available to the pulp mill at a reasonable cost. This calls for careful and detailed enquiry into problems of collection, handling, transport and storage.
Techniques
Frequently, alternative processing techniques are available, and a choice has to be made in the light of the particular pulp and paper qualities it is desired to manufacture. Some processing operations, especially where non-conventional fibers are involved, have proved themselves in the laboratory but have yet to be fully tested on a pilot plant or industrial scale.
Markets
Many of the domestic markets, though expanding rapidly, are still small in relation to those served by industry in more developed countries. Detailed studies of present and potential markets are required to ensure that they can sustain mills of economic size.
Finance
To establish a new pulp and paper plant calls for heavy capital investment. But in the less developed countries the calls on capital are many; all these countries take measures to regulate the flow of capital. What are the special claims of pulp and paper? How can the flow of capital - public and private, domestic and foreign - be stimulated? What steps are necessary to reduce the danger of investment? All these questions need to be examined.
Cost
Through every phase of project planning runs the problem of potential cost, of the ability of the eventual product to hold its own, in quality and price, in the market for which it is destined. For if newly established industries prove not to be viable but to require unnatural protection in the long term, then not only will further developments be frustrated but the country concerned will be committed to a permanently depressed level of paper consumption, and the fundamental objective will have been defeated.
It was to throw light on certain of these problems that, at the request of Latin American governments, three of the agencies concerned with the United Nations pulp and paper program convened a conference of experts in the pulp and paper industry. At the invitation of the Government of Argentina, this meeting was held in Buenos Aires from 19 October to 2 November 1954
Nearly 200 experts, drawn from 14 Latin American and 10 other countries, participated in this meeting, and 72 papers were submitted for their consideration. Of these, 10 were prepared by the Secretariat, the remainder being written on invitation by specialists from 16 different countries. All the papers were specially prepared for the meeting and many contained important new material, hitherto unpublished. A number included the results of investigations specially undertaken in preparation for the meeting.
The session was formally opened by Carlos A. Hogan, Minister of Agriculture and Livestock of Argentina, who was elected chairman at the first plenary meeting, when addresses were also given by Raul Prebisch, Executive Secretary of the Economic Commission for Latin America (representing the Secretary- General of United Nations) and by Egon Glesinger, Deputy Director of the Forestry Division of FAO (representing the Director-General of FAO).
The work of the conference was directed by Carlos Quintana, for ECLA and the United Nations Technical Assistance Administration (TAA) and Arne Sundelin, for FAO. Tomas F. Desimone (Argentinian Ministry of Foreign Affairs) acted as Secretary-General, the co-ordinators being Pierre Terver, for FAO, and Alfonso Santa Cruz, for ECLA and TAA. Technical secretaries were Jack Westoby, of FAO and the Economic Commission for Europe (ECE), and Gerald Welsh, of FAO. J. Alfred Hall (Director of the Forest Products Laboratory, Forest Service of the United States Department of Agriculture) was appointed Rapporteur.
The range of expertise assembled was impressive. Some indication is given by the following list of specialists elected to preside over the discussions and drafting on the several points of the agenda:
Carlos Benko (Brazil)
Pulp and paper consumption, production and trade in Latin America;
W. O. Hisey (United States)
Economic aspects of pulp and paper manufacture from Latin American tropical and sub-tropical hardwoods;
Lucas A. Tortorelli (Argentina)
Aspects of pulp and paper manufacture based on other Latin American forest resources;
Joseph E. Atchison (United States)
Economics of pulp and paper manufacture from sugar cane bagasse;
Hans W. Giertz (Sweden)
Presentation of papers on selected technical matters;
Silvio Gagliardi (Argentina)
Review of the development prospects for pulp and paper industries in selected Latin American countries;
Stacy May (United States)
Financing Latin American and paper development;
Percy R. Sandwell (Canada):
Newsprint;
Gardner H. Chidester (United States)
Committee and working group reports:
In addition, two special working groups were constituted with the following chairmen:
H. K. Collinge (Canada)
Technical assistance matters;
R. B. Jeffreys (Australia)
Eucalyptus.
The conference was not a gathering of government representatives, though a number of the experts attending held official posts in government departments or in quasi-governmental institutions, for example, in forest services, in economic ministries, m Development Banks: however, they attended in their private capacities. Thus the recommendations of the conference though addressed in some cases to governments, involved no commitments by governments.
Space does not permit the reproduction here in full of all the experts' conclusions.3 The following paragraphs summarize briefly the present situation in Latin America and draw attention to some of the interesting features of the meeting's deliberations and conclusions.
3A full account appears in a preliminary, Report of the Latin American meeting of experts on the pulp and paper industry, (Part II, Resumé of the meeting: its aims. deliberations and conclusions. pp. 17-30). The Final Report, to be published later this year, will include either in extenso or is summary version, the papers submitted to the meeting.
A conservative estimate sets Latin American pulp and paper requirements by the year 196,5 at about double the region's average consumption during the years 1948-52. Given favorable economic developments, this estimate of future requirements (3 million tons of paper) might be considerably exceeded.4
4These Secretariat estimates were confirmed by investigations official and unofficial, undertaken in several Latin American countries and also, so far as newsprint, printing and writing paper are concerned, by the independent study commissioned by UNESCO from the Intelligence Unit of The Economist, London
These increased requirements are not likely to be met by imports from Europe or North America, nor can they be met by Latin American projects under construction or in the planning stage. The general situation is shown graphically in the diagram, which is based on the assumption that imports into Latin America of both pulp and paper will be maintained at their present level. The diagram shows two prospective levels of future capacity needs, one corresponding to favorable (not maximum possible) economic development the other to only minimum economic growth. It also shows the estimated capacity by 1965 - on the most liberal interpretation, since many plans are included which are, at the present time, only under preliminary study.
Thus if clearly foreseen requirements are to be met, regional capacity for pulp and paper production must rise steeply over the next few years. There is definite need for the development of the production of ground-wood pulp, or of pulps capable of replacing mechanical pulp for newsprint, and likewise of pulp for high strength wrapping papers.
The conference paid special attention to the economic aspects of manufacturing pulp and paper from tropical and sub-tropical hardwoods, the region's most important fiber resource. It examined carefully the experience already acquired in Latin America and in other regions, and reviewed the investment and production cost estimates set out in the Secretariat studies of hypothetical mills located in the Amapá region of the Amazon and the Yucatan peninsula of Mexico. The exploitation of tropical forests for pulp and paper raises new problems - of resource management, of pulp and paper technology, of economics. None of these problems are insoluble, but those relating to cost are likely to prove the most intractable. Since basic community services will generally be lacking, any new project will involve heavy settlement costs. If, for social and economic reasons, governments consider developments of this kind to be desirable special action to reduce the burden of "settlement costs" is necessary for private capital to be attracted.
For a variety of reasons, locational factors weigh more heavily on investment and production costs in tropical forest projects than in the case of projects based on more conventional resources. Hence, correct site selection is crucial. Generally speaking, capital costs will be heavier for sites in undeveloped areas than for sites in industrial areas, but certain other costs, such as those for pulpwood and wages, will tend to be lower.
The experts reached the conclusion that available data demonstrated the possibility of converting pulp into satisfactory paper at competitive prices in national or regional markets, provided the site is correctly chosen.
Apart from the tropical and sub-tropical forests, Latin America possesses other important forest resources in the shape of considerable broadleaved and coniferous temperate forests, as well as extensive plantations of both categories, including both native and exotic species. The problems of regulating, exploiting, transforming (including transformation through exploitation) and extending these stands are not peculiar to Latin America, though local conditions change the weighing of the various factors to be taken into consideration when formulating policy. The conservation role of the forest was emphasized, and the need to consider each forest within the framework of a general resources and land use policy was stressed. The meeting touched on fire hazards and the dangers of overgrazing, and discussed natural and artificial regeneration.
Plantations, which offer a great attraction to pulp anti paper manufacturers because they can afford a high yield of suitable, homogeneous material and because development may be possible in close proximity to industrial areas, are particularly to be recommended in those instances where they either constitute the best form of land utilization or represent a profitable use of presently unprofitable forest sites. There is great need in Latin America, however, for the exchange - both within the region and with other regions - and analysis of experience acquired on both the silvicultural economic aspects of plantations, and for more and better co-ordinated research.
These other Latin American forest resources pose fewer technical problems for pulp manufacture. There was special interest in assessing the possibilities of the region's extensive eucalyptus plantations, and a working party set up to consider this matter reported encouraging prospects, though mechanical pulps produced therefrom are likely to be of poor quality and usable only as low percentages in blends for the manufacture of newsprint.
The most important non-wood fiber resource is bagasse, of which Latin America produces annually about 26 million tons fresh bagasse containing 50 percent moisture. This could provide 4 million tons of pulp, but today only 1-1½ percent of this quantity is being pulped in the nine existing mills using this new material. Here the problem is to free bagasse - presently used as fuel in the sugar cane milling operations - for paper making, either by improved thermal efficiency in the sugar mills or by conversion to the use of an alternative fuel. Since the capital costs of conversion are low, the dominant element in the cost of releasing bagasse for pulp by the latter method is the cost of a substitute fuel. This limits the future contribution of bagasse to the Latin American pulp and paper industry. On a long-term basis, however, there is no doubt that bagasse, because of a variety of favorable economic factors, will play an important part in future developments, with an obvious significance in those countries where supplies of other fibrous raw materials are lacking and especially where cheap fuel oil is available.
A discussion on development prospects showed that most Latin American countries, recognizing the social and economic value of a creative industry based on a renewable resource and with the capacity for generating new and allied industries, were giving a prominent place in their plans for industrialization to the development of adequate productive capacity for pulp and paper. Raw material supply differences and specific economic circumstances may be expected to give rise to a tendency towards specialization within countries; the complementary nature of resources in neighboring countries suggests that it would be desirable to facilitate the development of intra-regional markets in pulp and paper.
Economic considerations are primarily responsible for the fact that, as yet, plans for expanding newsprint production fall short of expected future needs. At the present time, Latin American newsprint production is mainly based on traditional fibers, which are lacking in many countries within the region. Today, it is technically possible to produce a satisfactory newsprint of unconventional composition, reducing the furnish of coniferous long-fibered pulp. Newsprint mills however are generally specialized and require large investments and a relatively large output. Thus, governments which wish to ensure domestic supplies of newsprint must take cognizance of the economic disadvantages under which such a new industry may, in certain eases, have to operate.
To achieve a reasonable level of paper production by 1965 the amount of new investment required annually is between US $50 and 90 million. These figures need not be regarded as unattainable; even the higher figure corresponds to only 1½ percent of average annual investment in Latin America in the post-war period. About half the amount would be required in the form of foreign exchange, but that represents only 0.5 percent of the region's foreign exchange earnings.
However, capital - whether public or private, local or foreign - will only become available for projects which succeed in satisfying strict criteria. The experts set out in some detail the various points on which investors need to be satisfied. They laid emphasis on the need for competent and thorough-going preliminary investigation of all aspects - technical and economic - of proposed projects. Such investigations will take time, and will involve considerable expense. Nevertheless, they are indispensable, and those intending to operate the project must be prepared to bear the cost. If the results of these investigations are presented in the form required by financing agencies, and if the conclusions are satisfactory, then it should be possible to procure the necessary capital.5
5The paper "Financing pulp and paper development in Latin America" which was prepared by the Secretariat, in co-operation with the Economic Commission for Europe, is reproduced earlier in this issue. The concluding paragraphs of the conference's report on this item of the agenda are appended.
If the development of new pulp and paper production along sound technical and economic lines is to be ensured, Latin America's greatest problem is the lack of technically trained personnel for managerial and supervisory positions; in addition, a volume of advice and direct technical assistance is needed that cannot yet be adequately obtained from existing agencies and local sources. The experts believed that regional co-operation and programming of research and training activities was necessary and practicable. They drew attention to the need for parallel developments in the field of pulp and paper technology. Finally they recommended that an advisory group, consisting of experts on all aspects of the pulp and paper industry, be placed at the disposal of Latin American countries; such a service, they believed, could be provided through the United Nations Expanded Technical Assistance Program.
The Buenos Aires meeting has given stimulus to the development of the Latin American pulp and paper industry.
For this much credit must go to the Argentinian government, which acted as host. The intensity of Argentina's own interest in the problems before the conference was made clear in the course of a lively and stimulating discussion between many of the experts and President Peron, who received them at the presidential palace. Throughout the conference, representatives of various Argentinian government departments, the forest service, the pulp and paper industry and the trade unions all collaborated to ensure that the experts' time was usefully and pleasurably employed.
